Type 2 diabetes mellitus (T2DM) is characterized by defects in insulin action and insulin secretion. Although insulin resistance manifests early during the prediabetic state, a failing beta-cell function unable to overcome insulin resistance at target tissues determines the onset of T2DM. This review focuses on recent advances in the molecular mechanisms of insulin resistance and beta-cell dysfunction. The role of mitochondrial dysfunction, impaired regulation of the enteroinsular axis, and endoplasmic reticulum stress are currently the subjects of intensive research. In addition, the adipose tissue has emerged as a major endocrine organ that secretes a growing list of adipocytokines with diverse central and peripheral metabolic effects. The role of a growing number of candidate genes and transcription factors regulating insulin action and secretion is also discussed.